Ep. 77 - Reconciled's Michael Ly

Jeff Robbins interviews Michael Ly, CEO of Reconciled, about tax and employment law, company get-togethers, and transitioning legacy professions from brick-and-mortar to remote roles.

Here’s the transcript:

JEFF: Hi everyone. It’s Jeff Robbins, back with Episode 77 of the Yonder Podcast, where we talk to company leaders and big thinkers, about how to make remote work. We’re focused on expanding the remote work job market, and helping listeners to create happy, productive, distributed teams. This time we are talking to Michael Ly, who is the CEO at Reconciled, a serial entrepreneur, who started several businesses. Reconciled is a virtual CFO firm, bookkeeping, accounting services that you could find at getreconciled.co.  

(01:10) Really fascinating conversation with Michael. We talk a lot about things that I’m sure listeners will love to hear about, tax and employment law, that’s always a really popular thing on this podcast, something that people want to make sure that they get right. We also talk about company get-togethers and we talk some about transitioning legacy professions like, accounting, the more traditional, conservative kind of professions to remote, and some of the advantages of that and some of the difficulties, sociologically, as people in those professions get their head wrapped around the idea that they could work remotely.

JEFF: Hi Michael. Welcome to the Yonder podcast.

MICHAEL: Thanks Jeff. Thanks for having me.

JEFF: Yeah, it’s great to have you on. (3:20) Where are you talking to us from today?

MICHAEL: I am in Burlington, Vermont, where I call home, and it’s a beautiful fall day. 

JEFF: Yeah, we’ve had several New Englanders on the podcast. Myself, I live in Rhode Island, so I (3:33) don’t get up to Burlington as much as I’d like. Summer is sort of the time to go. I guess unless you’re a skier. [laughing] It gets really cold up there. I mean, you’re practically in Canada really.

MICHAEL: Yes.

JEFF: Throw a baseball from Canada to there.

MICHAEL: Yeah, it gets surprisingly cold, even for Bostonian’s that relocate up there, they are surprised by how that short of a distance the weather can change quite a bit during the winter.

JEFF: Yeah. Maybe it’s in Boston you have the ocean there, and it kind of keeps things more temperate than you realize, because it does get, what feels like cold in Boston, until you get to Burlington. [laughing]

MICHAEL: [laughing] Yeah, it’s definitely a different group of people up here, that’s for sure.

JEFF: [laughing] (4:21) Did you, yourself, relocate to Burlington? Or are you from up there?

MICHAEL: Like many people, especially Asian/American’s, I’m Asian-American, there’s not a large population of native Asian Americans here or generations of Asian-Americans, so I married into Vermont. I think my wife’s a 4th generation or 5th generation Vermonter. So, she grew up on the border of Vermont and Canada and introduced me to Vermont. I’m from Arizona which is in the Southwest, and most people in the Southwest don’t believe there’s a state other than New England, [laughing] and Boston’s the capital. So, when I first met my wife Shannon, I literally looked at her and said, “what’s Vermont? Is that a city in New England?” [laughing] That’s how ignorant people in the West Coast can be about the rest of the country.

JEFF: Well, that’s sad. I mean, the reason I bring all this up and particularly relocating is because these remote cities there’s a lot of interest in remote work because there oftentimes isn’t that magnetic pull that a lot of the tech hub cities are that we think about. But, before we get into that, let’s introduce you to the listeners. You’ve done a whole bunch of things.(5:48)  You’re the CEO of Reconciled, and an entrepreneur who has done a whole bunch of things over time. Tell us about that,  and particularly, as that relates to your experience around remote work. 

MICHAEL: I got started in my career in accounting and finance during and after college, but I always knew inherently I wanted to be an entrepreneur and I had an entrepreneurial drive. My parents are both entrepreneurs, they were both refugees from Cambodia, and kind of modeled, or me and my siblings starting out with nothing, starting something with nothing looks like, and so, me and my siblings inherited that in our DNA and so me and my siblings are all entrepreneurs to this day, which is great. So, I knew that I would want to start something. When I moved out to Burlington, Vermont, my wife and I came here to basically raise our kids. We had one child at the time, and we have had two more since then. I knew being here in Burlington that it wasn’t going to be the same kind of economic environment, or the same population that creates the mass you need for a fast-growing ecosystem, so I set out to figure out what I wanted to do next. So, I started doing CFO consulting for different companies and a few years into being here, when I reached the summer of 2015, I realized that this whole bookkeeping side of a business was a big challenge for most entrepreneurs and startups. So, it’s usually the last thing that entrepreneurs think about, is bookkeeping and accounting. It’s not sexy, it’s not fun, it’s very tedious for most entrepreneurs, so I went out to solve that issue and try to come up with a systemized way as well as a way to provide accounting and bookkeeping services to startups across the country and entrepreneurs, that was affordable, accessible and allowed them to focus on their core strength which is what’s growing their product or service that they went into business in the first place with. That’s the idea that began. I wanted to do it from here in Burlington, Vermont, which is where I live, and not have to move to a major city like Boston or New York to do it. So, spent the summer of 2015 coming up with framework of Reconciled, hired my first bookkeeper and chose a platform, QuickBooks, to do it from and additional accounting apps to do it from, and began growing the business and acquiring customers. And before I realized that I’m four years in, I’ve got 20 employees, five additional team members that are contractors and adding about one or two employees a month to the team. All those team members are distributed. Basically, from the beginning I didn’t want location, like being in Burlington, to be an inhibitor to the growth of our business, so we’ve intentionally looked at cities and states to hire from, so now we have employees in eight different states, and I think additional team members, contractors in maybe five additional states on top of that. So, we’re disbursed in about a dozen states and we have clients in about half the states in the country. It’s been really a great experience to jump into this and really see distributed workforce and remote teams as a strength not a weakness to what we do. 

JEFF: Certainly. Having run a distributed company you start looking for resources that are sort of compatible with that, and it’s relatively easy to hire developers who want to work remotely, it’s easy to hire management sometimes, marketing people, sales people certainly, but especially when you get to [laughing] more traditional, more linear professions like bookkeepers and accountants and stuff like that, for some reason I’ve found it’s really difficult to find those kind of people who want to work remotely, who are looking at remote jobs as a possibility. I’m not exactly even sure why, so, it’s nice to talk to companies like yours that already speak that language. So, there’s sort of this skill of, is accounting different for a remote work company than it is for a physical company? Maybe there’s some little bit of different ways of thinking, but it’s not particularly. In having tried to hire a bookkeeper and an accountant, a CFO type people internally, it’s been difficult in a remote environment. I’m guessing you have a whole list. (11:08) What are the advantages of hiring a company like yours where people have that experience?

MICHAEL: Obviously, our primary employees, our bookkeepers/accounting professionals, CFOs, are teams, and they’re all remote workers and so, to address some of the challenges you’re talking about, where companies have had a hard time finding remote workers that are in the field, if you think about the accounting profession in general, much like other industries that move very slow, and slow adopters to technology, the accounting profession is very conservative.

JEFF:  Well, and you want your accountant to be methodical. You don’t want them to make mistakes. [laughing]

MICHAEL: Yes, exactly. You them methodical. And the people that are drawn to accounting, tend to be, I think in that vein. I mean, I could be stereotyping, and some in the accounting profession don’t like me  saying [laughing] these kind of things, but when we go out and look for accounting professionals, what also confirms, what validates what you’re talking about is, we often get accounting professionals to see our job ad and we’re literally the first remote accounting job they’ve ever seen in their whole career. So, one, they think it’s a scam at first, but they explore it, and it’s not until they get to the second or third interview that they realize, “oh, wait, this is a real company. They legitimately are providing a real career, they’re not an MLN scam or some other kind of scam, or a Nigerian prince wanting us to send some money.” 

JEFF: We are talking about both methodical people, but also this is finances where you want to be careful and conservative and secure and all that kind of stuff, and that realm is rife with scams. In fact, even when we start talking about banking and anything in the cyber/virtual realm, everyone’s hair goes up on the bac) of their neck.

MICHAEL: Right. And so, because of that, we realize, okay, we need to both not only close the trust gap with our customers, but also with our potential employees, to say that, even though remote work for accounting professionals is still in the minority for the industry, it is a fast-growing minority. You see platforms coming out and also competitors to Reconciled that are coming out, that are providing, kind of the uberization of remote work for accounting professionals, but also are completely remote companies themselves. So, we knew that and acknowledged that, and so what we did was, we were very intentional in our journey as a remote and distributed company. We began hiring and making intentional hires in cities that were either driving distance or one flight away from Burlington. That’s how we started.

We said, “okay, if we want to begin introducing this remote work concept to our potential employees and our customers, let’s start off with hiring people in the Greater Burlington area, in the whole state of Vermont, so that they can get to Burlington, across the lake in New York, in Manchester, New Hampshire and then let’s start looking at cities where, literally, me or the team member can get on one flight and come to Burlington or I can reach out to them physically.”

We begin just doing those easy, low hanging fruit ways of doing that and that’s what kind of began our journey with remote work.

JEFF: (14:42) So, what does that look like when hiring? You’re not posting on a remote work job board; you’re targeting those specific locations with your job posts?

MICHAEL: We are actually posting on remote work job boards but we’re saying specifically you need to be located in these cities or states, or in the greater areas of these states, and, yeah, exactly, we’re also posting  in the cities of those locations to say this is a remote job, work from home job with flexibility. We usually provide also a coworking space in that city for people who want to get out of their house on occasion as well. But, we’re very intentional about that. The other thing that is the accounting hat that I put on is, and one thing that a lot of distributed teams don’t think through is, when you hire, for every additional city or state you hire in, you create what you call “tax nexus” for your company. So, if you have a closely held organization like an LLC or partnership, S corp., or even a C corp., for every place you hire an employee, you now have to register in the state for employment tax; you have to register for unemployment tax; you have to register for Workmen’s Compensation. There might be a municipal tax or a local family or medical leave law that you have to abide by as a remote company, and then as a partner you have to then begin filing an IRS tax filing for that state, or an S corp. filing. And those are the things that I think a lot of CEO’s and entrepreneurs that are doing distributed work, they don’t think about. They don’t go, “Oh, I unintentionally created tax nexus and now I have this tax filing in Delaware that I didn’t expect to happen.”

JEFF: I think one year I signed tax forms for probably many different states. 

MICHAEL: [laughing] Right. And those are the things where I put my tax hat on and went, “okay, I don’t want to have to deal with five states out of the gate, I want to deal with two or three, and then as I grow, I’ll add an additional, additional,” unless I’m hiring for a really obscure skillset where, okay, I’m willing to deal with somebody in Rhode Island or somebody in a state I don’t operate in right now, then I want to be intentional about the tax nexus I create. That’s really important for both our customers but also for us as we’re building a distributed team.

JEFF: It keeps it cleaner. (17:21) To hire people willy-nilly around the United States, isn’t necessarily a bad thing, the biggest problem is that, particularly at the Federal level, the revenue services don’t understand [laughing] remote work, and oftentimes as I say, there’s not a checkbox for that. So, in addition to these twenty different tax forms I filled out for all the different states then on top of that, you get another four or five angry letters from some random state saying, “hey, you owe us $20,000 because we misunderstood something,” and thankfully I had a really good team to help with that stuff and [laughing] I was able to send it off to them, and the response was always, “oh, don’t worry about this.” But it is scary to have that happen, but I like the strategy, by also keeping it so that people are one flight away, especially if you’re growing a company, to just know that you can get people together physically when you need to.

MICHAEL: Right. We’re very intentional, we try to get our whole company together, physically in person at least once a year if not twice a year. So, we do that for a variety of reasons, but also as a distribute company you’re trying to augment the natural, cultural creation that happens in an office. Right. The natural cultural. You’re trying to augment that with technology, and technology can go so far, but also, we understand that  physical human interaction, especially in a larger group, is sometimes hard to replace.

JEFF: It’s tough to beat a million years of evolution.

MICHAEL: Totally. [laughing] Exactly. We don’t have long enough a timeframe as a society to doing distributed work together in large groups, and until we get those options and that history created, the fact is, we’re going to have virtual reality created to make that even better pretty soon here. Facebook and all these other companies are working on it. but until then, we’re going to have to augment with technology that we have, with videocalls, group chats, and then we got the occasional in person, which frankly is fun. If you could remember growing up, those camping trips or youth retreats or high school or  college trips that you did, or road trips, and just the experiences that you had from those, that’s what we’re trying to recreate when we finally get together. The team members just go, “Wow. That person I’ve been talking to on video for three, four, six months a year, almost, I get to see them in person. I feel like I know them, but now I really know them.” So, we really think it creates that camaraderie and that team knittedness that we need by doing that once a year gathering.

JEFF: (20:47) What do your gatherings look like? Is it a multi-day thing or do you get together for a meeting? What does it look like?

MICHAEL: We geek out on tax law [laughing]. No.

JEFF: [laughing] I wouldn’t want to be there, but I have a lot of respect for that. 

MICHAEL: [laughing] Really. Usually it’s about two days at least of time together, with travel on the backend and the frontend, it’s usually three days total, but two days of actually being together. We have about a days’ worth of training and that training could be related to updates on QuickBooks online and the accounting software that we’re using to serve our clients, updates on how the company is growing and what our plans are and the team members that we’re adding. Then we try to have a lot of fun. This month actually in a couple weeks, we’re having our staff gathering for this year, and we’re going to do some fall stuff in Vermont. We’re going to do some fun things that a lot of the team members that don’t  live here have never been exposed to. We try to do something fun and teamwork related to get the team getting to know each other and really getting physical touch points involved that aren’t going to happen because we’re a distributed team. It’s a lot of training and then a lot of fun. 

JEFF: It’s really tough to explain these distributed company retreats or get togethers to people that only have experience in a physical, collocated company because when you picture a retreat there, there’s parodies on The Office about this, [laughing], like, “we’re going to do trust falls and things like that,” but when people have been deprived of this connection of literally being in the same room together, it’s really intense and powerful and also has this amazing ability to sustain. You can feel it in the culture of the company for weeks and months after a get together, and really you only need to get your team together a year to get that.

MICHAEL: Oh yeah. I would describe it as, ‘if you think about the best of what office interaction or being in an office has the best, and you take out all the worst things.

JEFF: The best. This is the best folks. [laughing]

MICHAEL: Yeah, because if you take out all the politics that happens in an office, it doesn’t happen. All the politics, the things you take for granted, all the annoying things, and you only put all the highlights of being in an office; the occasional times where you’re just having an amazing time, where the best  jokes are being told, where you’re having outings and dinners, all that happens in a matter of a few days, and you condense all that, that’s why it’s memorable. Then all the things that you don’t like about being in an office, those things just don’t happen because you’re not in an office, your not taking each other for granted. You’re actually like, “Wow, I (24:14) really enjoy being in your presence.”

JEFF: You’re not stumbling over each other. Everything needs to happen proactively and why would you proactively do the negative stuff. 

MICHAEL: Yes.

JEFF: Why would you go out of your way to passively, aggressively do some office politic elbowing move? 

MICHAEL: Right, and what’s great too is, and a lot of companies do this, is we make everybody stay in Airbnb’s together, so it’s not like a corporate retreat where you’re each  in your own hotel room, and you’re in the Airbnb’s together, you’re getting to see each other at night and seeing each other in your pajamas, [laughing] and you’re waking up and having breakfast and coffee together, so you’re getting a sense of, “I’m really getting to know this person in this condensed time,” and they’re not distracted by family life or by office politics or by office distractions, because we’re in these Airbnb’s hanging out, spending time together, and then we’re doing these team things together, whether it’s training or fun. I find it to be really, really great.

JEFF: Yeah. And here, again, (25:27) I would imagine if someone’s listening who is a manager at a collocated company, maybe they’re listening because they’re thinking about doing this remote work thing, some of this stuff is going to sound pretty foreign, but as soon as you start putting together a remote team, it just seems kind of logical to seeing people in their homes anyways, there’s more of an acceptance of a casual event, and even this craving to get together in a way that I feel like in office environments there’s more of a craving? part. [laughing] At least stereotypically. 

(26:18) Talk to me about, in starting this accounting firm you also need to find customers, we talked some about finding employees, people to do the work but this is a services business [laughing] and oftentimes again, as with these traditional businesses, this is an old profession of accounting, people just look for the accountant around the corner or down the street,  or the business next door asking “who is your accountant?” How do you find customers?

MICHAEL: One thing I talk about with this is accounting is in this service area that I call the “handful of services that most people buy locally,” and it’s a service that has high trust and high fiduciary responsibility. So, if you think about who are the services? You usually purchase your attorney or legal services, your banker or where you bank, your accountant, your doctor and maybe your psychologist. Those are the five. For every major small business or entrepreneur, these five, I buy local, even though I could buy virtual. I could see virtually now. The technology exists to do it. Even Teladoc is a possibility. My health insurance Aetna has this Teladoc service where I can literally just talk to a doctor and a nurse by my phone and get diagnosed. I can see a psychologist on video now, a counselor on video. I can talk to an attorney and a banker.

So, everything is available to do, but the majority of us, 80% to 90% of us still do this locally. I knew that and sensed that and realized that as a CFO and somebody with an accounting background, and said I need to leap or build a bridge over that trust gap by creating a very transparent culture and company and values for Reconciled on the face of what we do. Our website, our branding, and all our videos, I did video very early and accounting firms don’t do videos [laughing], we’re very boring, so I did video very early to let people know, in the beginning you’re basically trusting that Michael Ly and what we’ve built is trustworthy. So, explaining to them very clearly how we work, what we do, the software we use, how we plan to communicate with clients, where your data is going to be stored, how it’s going to be housed, we talk about all of that and we explain that to our early customers.

And, of course, any service business I let my CFO clients that I was consulting know in the beginning, “hey, I’m starting this online bookkeeping firm. I’ve got a bookkeeper hired. I’m going to hire more. They’re all going to be U.S. based. They’re all going to be certified and efficient in QuickBooks and other accounting apps, you can trust us, and if you’ve worked with me in the past and now, you can work with my team.”

That was early on. But then using the videos and leveraging our website and leveraging LinkedIn, I began acquiring customers that were not in Vermont or in my local vicinity but were clear across the country. So, they would find our website, see our videos, resonate with me as an entrepreneur, and from the beginning sharing my entrepreneurial journey, talking about how Reconciled itself is a startup, I’m an entrepreneur, how I can relate to what they’re going through.

So, really being transparent about myself and about my values and what I was trying to do, helped us acquire customers. That was really, really helpful. Then, probably our biggest growth has been from something that many people in other industries have done, but accountants have never done, which is email marketing. At Reconciled, we’ve been doing email marketing since fairly early starting out and that put us in a really different position than a lot of accounting and bookkeeping firms, because most of the emails I get that are called emails, are from software developers overseas or marketing agencies or software as a service company, but I never, ever, ever got one from a bookkeeper and accountant. We began doing that early on.

The company has only been around for four years, so probably about a year in, I began playing around with the email marketing, and realized how fast we could grow from it. It’s been one of our biggest customer acquisition strategies over the past three years.

JEFF: (31:13) Who do your customers tend to be? Are they just your standard (31:22) collocated company? Are they looking for something more virtual to start with? Is there any sort of vertical that you’re tending to find yourself in, or patterns? Or is it just all over the board?

MICHAEL: We do have a heavy concentration of customers in probably a handful of industries, and they tend to be faster growing industries right now, and also forward thinking. We have a lot of clients that are e-commerce companies or what I call “multichannel sellers.” These are people that have created a product and they are selling them on a website like Shopify and also on Amazon and E-Bay and other marketplace platforms, and they might be also wholesaling it to retail stores. So, multichannel sellers, professional services firm, so other service providers that are either doing marketing or HR or sales online and they also are distributed companies, professional services, digital marketing agencies, most digital marketing agencies we work with are distributed teams so they’re really easy to work with, because they themselves are selling a distributed service. Then breweries and alcohol, that happens to be the fact that we are in Vermont and because Vermont’s well-known as a brewery place, and because we would pickup early brewery clients, we’ve been able to get others across the country, so anybody in brewery or alcohol, but that industries growing very fast. People making alcohol, whether in recession or in a bull market, people are drinking, [laughing] and breweries like to be savvy with resources that they have, so they’re using a service like ours.   Then “sass” companies, “software as a service company,” they tend to be distributed as well. Those are the industries we have heavy concentration in, but we also have quite a number of nonprofits, retail stores, a few restaurants,  people in construction, construction workers, manufacturers, other industries that aren’t necessarily distributed but they are lead by forward thinking entrepreneurs, who want to leverage technology and want to use a service like ours, and resonate with who we are as a brand and who we are as a service. So, that’s been really, really wonderful to serve those types of customers.

JEFF: Cool. I have any number of different directions to take the questions here. (34:12) This one keeps coming to mind. It sort of echoes back to some of the stuff we were talking about earlier, but, as an accounting firm with your own remote workers, with clients with remote workers, do you feel like there are “gotchas” out there? This idea of nexus is sometimes a surprise to people and sometimes as the laws are changing there can be little “gotchas” out there. If you were talking to someone who was starting a fully distributed company or building a remote team onto their existing collocated company, what “back of the napkin” advice would you give them?

MICHAEL: As people are in this journey of hiring people to their teams, and because unemployment is so low right now, there are companies that are obviously trying this remote idea, or remote team idea, mainly out of necessity to find team members across the country, to find team members in states that have maybe a higher unemployment rate. But also, if you’re trying to just start a company and you want to go into this, there’s a few things we’ve seen, a few “common mistakes” or “gotchas”. One is, as people build distributed teams, they want to take advantage of the convenience of having the team members as contractors, which is totally fine. A lot of people starting up start that way, they have a team member as a contractor, but the mistake they make is trying to treat that team member as an employee when they’re not. So, one of the rules you have to know is that the IRS and the state’s that these contractors work in, they will not look at you kindly if you try to treat a contractor like an employee. For example, you can’t really expect a contractor to be loyal to only your business if they’re not an employee, because a contractor, by definition, is a business owner. A contractor by definition can and frankly for their safety, should have, more than you as a worker, otherwise the IRS or the state they’re working from may force you to treat them as an employee later. A lot of companies get into this problem when the contractor, let’s say a contractor is full-time with you, you are their only client, you’ve got 32-40 hours of work for them to do, and let’s even say they’re doing a job for you, that only they can do, they’re doing a marketing role, they’re doing a sales role, they’re doing HR or recruiting for you, but you’re the only company they’re working with, if they’re let go, it’s an official let go or firing that happens, the problem we see clients run into is that contractor then goes in and declares unemployment in the state they’re in.

All of a sudden, you as an employer, like, “wait, unemployment? You’re not an employee.” Then the contractor goes, “yeah, you’ve treated me as an employee this whole time. You’re the only client I work with anyways. You were my livelihood. You’re technically my employer.” The Federal government will most likely side with that employee; almost 9 times out of 10 they side. So, that’s one mistake.

JEFF: At which point they’ll come after you as an employer for all the taxes.

MICHAEL: Taxes. Which you didn’t submit for years. So, that’s the mistake a lot of new companies to this make is, to try to treat somebody as an employee that’s really a contractor or try to treat a person who should be an employee as a contractor.  You want to really clearly define that. Do you really need a contractor or employee when you go about this route and to build your teams? Secondly, if you’re trying to build a real organization, a real business, then my encouragement to everybody is, get employees. Hire employees. Whether they are part-time or full-time, hire people that will be employees, because you want them to be a part of your culture – your team, your brand – you want them helping you build your actual business and to be loyal to you versus leveraging contractors, where a contractor may or may not be loyal to you, but the reality is, they have to be loyal to themselves and to your brand. That’s one of the things I tell people.

JEFF: (38:46) I think this sometimes falls into some misconceptions around remote work as well, that part of the psychological feeling of people not being connected because they’re not working in the same office together, people assume, well then, “I guess they’re probably just contractors.” But I think that’s the wrong direction to go. People that are already prone to isolation, just due to the physical separation, and I’m talking about the evolutionary process on this podcast, but we are used to wanting to be in the room together and when we’re not, it’s something that we need to overcome, and I think making people employees is a step towards…

MICHAEL: Right. And also, you want to attract people that have bought into your vision and bought into what you’re trying to build and grow. Employees are the one loyal to that vision. A contractor theoretically can be, it’s just from a reality standpoint, they legally aren’t going to be loyal, because you’re a customer to them, and you should treat them as such. You should treat them as a vendor and they should treat you as a customer, they should be invoicing you for their time or however they’re billing you, and you need to treat the relationship as such. That’s fortunately or unfortunately, the way that the State and the Federal government has set it up.

Now, there is also a strategic route in which you build a remote team and you want to think through how you’re going to, as we talked about, compensate for that isolation. The way we do that is, by intentional check-ins, and an intentional structure, where every employee has an ability to check in, either with a team or with the person they’re being supervised by.

Just because you’re doing remote work, it doesn’t mean that you don’t have a supervisor, or you don’t have team members that you’re a part of, or a team you’re a part of, and that you should have intentional check-ins leveraging technology to do so, just like you would in an office, where you might have a pop-up check-in or a scheduled check-in, in a conference room that’s in your office, you want to have the same thing happening in a virtual room, for virtual team meetings.

So, we leverage the technology Slack to do that, as well as Zoom or Google Hangouts to do that. Slack let’s our team stay up to date and have what I call the office banter virtually, and then we can do the spontaneous or the scheduled video conference that mimics the conference room. That would be in your office. So, that’s really important to be intentional about the strategy you are going to use to connect people, because it is isolating, if you’re not intentional about it, you could end up working your 40+ hour week only connecting with a co-worker for one or two hours of that whole week. That can be fairly isolating if you’re not in an office.  You want to be intentional about that.

JEFF: Absolutely. (41:59) And all of this stuff is good management. I’ve said it before on the podcast, and I will continue to say it, “remote work is ankle weights for management.” [laughing] It’s a little bit more difficult, but we’re building stronger muscles and ultimately you become a stronger manager, and all of these check-ins, all of these ways of communicating that are more direct and more open and more honest, and less high-fiving, and more emails saying exactly what you would’ve meant by a high-five if you were able to give one, are good management. Right?

MICHAEL: Right. I’d say the other, last mistake or assumption is, if you’re an established company and you’re going to go the remote or distributed route for cost saving measures, let’s say you’ve got a 4,000 square foot office and you’re paying a large amount of rent, and you’re in the middle of New York City or LA, or whatever, and you’re like, “okay, if I go distributed and people work from home, and I can get half the space for maybe the executives, or a quarter the space for core management team I’m going to save some money.” Well, the mistake to think through is that it’s a like for like cost savings, because the reality is, you’re going to have to make some investments. You’re going to have to think through, okay, you’re going to require employees to have a solid internet connection at home that never goes down, that’s fast enough, especially fi they’re programmers or people downloading large amounts of data to interact with your company or do the work. Well, you might have to upgrade their internet at home and that’s an extra expense now for the employee that you’re going to have to think about in reimbursing. You’re going to have to make sure everybody’s got the same kind of setup at home. Do they have a separate home office at home, or an office that’s quiet, or do they have dogs barking, and cats meowing and kids running around? Well, okay, they’re going to have to think about that as for the employees that don’t have that you might have to pay for coworking space that’s nearby their house.

JEFF: Especially when you have a client services business where they may be on the phone or even on video conference with clients.

MICHAEL: Yeah. You might have to invest in some technology – better microphones, better headsets for employees, you might have to get an office chair that’s comfortable because they are going to be sitting at their home office. Those are all things I think people forget that are going to be investments they’re going to have to make that won’t necessarily have a like for like cost savings, maybe you need to be more realistic about what you’re going to save and like you just mentioned, the intentionality of management. Now you’ve got to train your people on how to manage remote teams. You’ve got to train your people about how to communicate and what is expected in communication online versus offline now, now that you’re not in an office to get those offline cues. So, those are all things I think somebody looking at this is going to have to look through.

JEFF: It always seems like bad news that it’s not a cost saving thing for companies. Maybe there are ways that companies could save costs, but it really comes at the expense of connection and ultimately an all-around better experience for productivity, morale, employee retention and just general connectedness of a company. There’s so many opportunities to do that, that I think if you really were to try  to impose those cost savings? you’d be missing out on stuff in a way that ultimately, I think would be detrimental for most companies. 

MICHAEL: I agree. That makes a lot of sense.

JEFF: (45:53) Are there any other “gotchas”, the states that people should avoid doing business in or hiring from? Are there things like that that you’ve seen?

MICHAEL: I definitely encourage companies to do their research before they hire an employee in a particular state, to do their research on the state and the state requirements. We’ve made an intentional decision to never hire a remote worker in California. There’s a variety of reasons, one of which California makes the tax reporting requirements from a revenue perspective very stringent, and also the types of registrations you have to go through as a company as an employer and what you have to provide to the employee, makes it very, very difficult to make the cost justified to hire somebody in California. There’s also states that have much more stringent family and medical leave acts and so you need to be aware of that, and also, there are states that have much hard overtime rules than the state that you’re probably operating from.

So, for example, the State of Vermont, the  way it defines a contractor versus employee is actually more stringent than the Federal government. So, we have overtime rules that you wouldn’t necessarily have in most states, so I make all of our bookkeepers that start out here, they all have to track time, because there’s overtime rules, versus other states where you could probably tell an employee, “oh, don’t worry about tracking time, you could work whenever.” Well, that’s actually not something that you’re allowed to do here in Vermont.

So, you want to make sure you do your homework on that and see how  stringent the state is. But, then also the advantages, there might be states where unemployment is really high, so there’s going to be a lot of talent at a good rate or a better than market rate, and you’ll be able to get a really great talent who can work from home, and then the cost of living might be significantly lower in some of these states you hire from, so therefore, you’re going to get a great experienced remote worker that might be at a half or seventy-five percent of what it might cost you for the same remote worker in Boston or New York City or San Francisco.

So, that’s another advantage to think through also is, being intentional about what’s the cost of living in the city? What’s unemployment like? What kind of talent are the colleges around there producing and what kind of companies are around there, that’s going to give you a sign of, if that state or city is going to have the kind of talent you’re looking for?

JEFF: I have a business coaching client that had a problem in California hiring a part-time remote employee because they weren’t working enough hours to be overtime exempt. Is that what it’s called?

MICHAEL: Yeah.

JEFF: And so, as a non-exempt employee all of their hours had to be defined and they had to have a half-hour lunch break and a break in the afternoon, a break in the morning, and it all had to be documented. It was just so very incompatible with the flexible, remote work stuff. We’re seeing that. You’ve got things out there like Uber that are redefining work, and I think, kind of in a good way, that the governments are stepping in and going like, “Wait, wait, wait, let’s make sure that employees are covered.”  But in some cases, they’re not considering all of the cases and they’re rewriting the laws. But still there’s no checkbox for remote work. 

MICHAEL: [laughing] Right.

JEFF: So, you get into problems like that. I’ve also heard difficulty with New Jersey and remote work, and as a professional services business, having clients in Texas the law at least last I knew was sort of viral, they would tax the entire business on the entire businesses income as if it was all made in Texas, or something along those lines. I need to keep track of all this. We should  put a webpage together that lists all of these things, mostly to reflect them back so that these governments can see how this reflects on us as employers with remote employees.

MICHAEL:It is a new territory. If you think about if you have American employees or non-American employees who decide to work remotely overseas and permanently relocate to Portugal, Spain or Brazil, or to Australia, then you have this other challenge of, “okay, can I treat them as a contractor now?” “Are there payroll companies that will do international payroll?” “What’s the tax implications for my company if I have an employer overseas.” There’s all that.

There’s also NAFTA rules if you have contractors in Canada. If you have employees in Canada, there’s these NAFTA rules you have to abide by. Do you have to now abide by GST and HST tax depending on the province they work in? There’s all these complications that jumping into this, you need to make sure you do your homework. I know a lot of companies leverage platforms, like Upwork or Fiver, and there’s another company called Safeguard International, that helps you set up remote workers in international countries, so that you’re protected and you’re abiding by all the compliance rules. But you want to make sure you’re doing your homework and not creating unintended compliance or scrutiny for yourself, that you’ll have to deal with later.

And oftentimes it hits when you think you’re doing really well, then it hits you, a notice, a notification, and all of a sudden, you’ve got a tax bill for three years and in your fourth year is super successful and you get this tax bill that just wipes it all out. You want to be intentional about those things, and having good advisors, having a good team around you, that knows and does that research for you, your legal outsourcing HR or accounting so that you don’t have to build that expertise in-house, that’s going to be really important for you with a distributed team.

JEFF: (52:17) Right. I realize that this is adjunct to your focus as a CFO organization, but I guess when it comes to taxes and salaries and stuff like that, what are your feelings about “PEOs?” which I should explain for listeners, is “Professional Employment Organizations.” A company who acts as a buffer between the company and its employees, and intercepts [laughing] and kind of handles all of this stuff?

MICHAEL: We totally believe in PEOs.  Reconciled, itself, uses a PEO.  We use Just Works as our PEO. It’s one of the fastest growing PEOs in the country and the great thing about PEOs, the advantage for a distributed remote team for PEOs is, if you’re trying to build an employee base that’s remote, they’ve taken care of all the necessary requirements, and they inform you of the requirements that you’re going to have to take care of, state by state. They are really great at customer service, really great at communicating about it. They’re growing very fast, so they’re obviously onboarding new customers every day and every week, but they had to deal with the complexity of employment/employer reporting in every single state. 

JEFF: This is the same reason you use an accountant. We could all conceivably do our own taxes, it’s just really complicated and difficult and you want to make sure that it’s done right. I think it’s the same thing when it comes to employment. These days especially, if it is as complicated as hiring people across state lines, or certainly across international borders. 

MICHAEL: And you want to make sure you get to know the PEO. You abide by their specific rules. So, there is a way that PEOs do things that you can’t do if you were not with a PEO. For example, there are very specific ways in which if you accidentally pay an  employee more than they should on their payroll, and you’re using a PEO to do that, or you accidentally pay the wrong employee, payroll for somebody else, there’s specific steps you have to take that are way more stringent than if you just did payroll on your own through a payroll provider, and you have a lot more flexibility. You also have to abide by your state rules. Some employers don’t know that if you accidentally pay an employee more than they should be paid, every state has rules about whether or not you  can collect that back, so it’s very, very interesting and whether or not you’re even allowed to hold an employee responsible for that. So, it’s very interesting in regards to that.

Also, I tell this about both when evaluating a payroll provider and a PEO who’s handling your payroll, but also your HR, is that you want to make sure that PEO or payroll provider is legitimate and is going to be around. So, we’ve run into more recent situations where there was a big story about a payroll company that was in New York and they basically had a huge scandal and diverted $35 million of their clients 4,000 employers payrolls. That happens with a payroll company that has 4,000 customers, you think, who has been around for 12 years, you think, “okay, their good.” No, you got to do your homework. You really got to make sure what are their practices and policies. Some of those customers went out of business that were impacted and some of them were able to recover, but it’s something that you want to really make sure you do your homework on and have the right advisors around you to vet these service providers and these PEOs. But I definitely encourage it and think it’s a great option for fast growing distributed teams.

JEFF: (56:34) Absolutely. Anything that can help with the complexity of things and ensure that the “i’s” are dotted and the “t’s” are crossed and stuff.  Interesting conversation Michael, thank you so much. Is there anything else that you want to touch on? Anything that we talked about today that was brought up that you want to bring up before we wrap up?

MICHAEL: I would say that in regards to building your company, especially distributed teams, is, whatever product or service you are providing, I would encourage companies to stay in their core focus. A lot of the times the areas of your business, like HR, IT, sales, legal, marketing, accounting, those are all areas which considering a best in practice, or best in class service provider out there, can really help you accelerate your growth and allow you to stay focused on your core area. So, as the example that you gave earlier, having to find a remote accountant to work with that would be part of your team, oftentimes you can find that kind of person but they might be with a service provider, or they might be with a company as a trusted brand, so, whether it’s HR, marketing, sales, the areas in which you know you’re not strong in, finding the service out there that can be best in class, that can be your partner, can really be a great way for you to learn quickly to get to market quickly, but also to avoid mistakes of having to build the expertise that helps.

JEFF: And it’s just fatiguing to build that much [laughing]. You think, “oh, we could learn that, that’s not a problem,” but it’s a lot of work to put it together. Another advantage of hiring a company like yours as opposed to doing it in-house is, the sort of aggregate knowledge that you’re able to bring as laws change, as techs issues change, as there’s new best practices, as other companies are starting to do new things, working with  a company like yours, that knowledge becomes a benefit whereas if you’re depending on that in-house person to keep up and stay up with the latest things or (58:59) mistakes will happen. 

Well, Michael. (59:00) If anyone wanted to follow-up with you, get in touch, ask further questions or find out more about Reconciled and the other things that you do, how should they get in touch with you?

MICHAEL: You can shoot an email to info@getreconciled.co or you can follow my Twitter, @burlingtoncfo is my Twitter handle. You can also follow getreconciled which is a Twitter handle for our company. People think I’m the Burlington Coat Factory CFO or the City of Burlington CFO, but otherwise follow me on @burlingtoncfo. I’d love to connect with you.

JEFF: Nice. Well thank you, Michael. Thanks so much for all the information.

MICHAEL: Definitely. Thank you, Jeff.